Depositors are now hurt as troubled banks are unable to return their money, experts said in a discussion, adding that the central bank should keep crisis-hit banks alive by providing support. in liquidity, by choosing to liquidate weak lenders or merging them with strong lenders.

They made the suggestion during a discussion on the economy’s performance in the first 100 days under the caretaker government at the Daily Star Center yesterday.

Participants in the discussion, organized by the Daily Star, included researchers and businessmen.

Monzur Hossain, research director at the Bangladesh Institute of Development Studies (BIDS), said the central bank previously supported struggling banks by printing money to provide liquidity support.

He added that the problems arose after the sudden end of this support.

The general population is affected by this situation, he said, adding that the central bank’s decision to stop printing money was not helping to manage demand.

Hossain also criticized the central bank’s decision to speak publicly about the situation of troubled lenders. When a regulator declares that some banks are on the verge of bankruptcy, those banks’ situation deteriorates even further, he said.

“Now depositors are panicking and withdrawing money from some banks.”

He added that curbing inflationary pressures and bringing discipline to the financial sector are the main challenges today.

The sluggish state of the economy is a legacy of the previous government and its mismanagement, faulty policy measures and “9-6 interest rate policy”, the economist said.

The 9-6 interest rate policy refers to a 2020 government directive, when it asked the central bank to ask all banks to charge an interest rate of 9% on loans and 6% % on deposits.

This decision was only withdrawn last year.

“Investments have not increased due to the 9-6 interest rate policy, but default loans have increased,” he pointed out.

The current central bank governor is further tightening monetary policy to curb soaring inflation. But the question remains how this will work in a developing country like Bangladesh.

“Controlling the money supply may not help curb inflation as it does in the United States. We are not the same economy,” Hossain said.

“In the United States, about 70 to 80 percent of loans are consumer loans. That’s why tightening the money supply helps control inflation there. But in our country, consumer loans consumption represent only about 12 to 13 percent.

“So we need an accommodative monetary policy.”

He added that inflationary pressures are not only a consequence of monetary management and demand management, but there are also problems on the supply side.

“It would not be wise to harm the economy by controlling inflation in this way,” he said.

The economist also highlighted the need for economic diversification and suggested reducing dependence on the ready-made garment sector.

Kamran T Rahman, president of the Metropolitan Chamber of Commerce and Industry (MCCI), said, “The banking sector is in a very bad situation. I don’t know how we’ll escape it.

“There was an attempt to merge the troubled banks before the caretaker government came to power, but it did not happen. Maybe this decision was not the right one, but the caretaker government must do something to this end.”

Rahman added that non-performing loans had exploded. “Will we be able to repair these non-performing loans? I don’t think we can do it quickly. »

He also highlighted some areas that could be overhauled quickly.

“I think the caretaker government is too busy with deep, long-term thinking. I think that’s good. But alongside that, there are low-hanging fruits that the government can grab, like strengthening money lending courts and increase the number of judges.

Mir Nasir Hossain, managing director of Mir Akhter Hossain Ltd, said the interest rate had increased due to the central bank’s monetary tightening.

He said loan classification rules could be tightened from March, leading to an increase in bad loans in the banking sector.

Mostafa Kamal, managing director of Meghna Group of Industries, said businessmen are always blamed for high inflation.

He said the 9-6 interest rate policy and the appreciation of the US dollar against the local currency had mainly impacted the country’s economy.